4/09/2010 @ 12:01AM

Has America Really Become Economically Unfree?

This week the conservative Heritage Foundation announced that the U.S. is no longer an economically free nation. Our score on the Index of Economic Freedom has fallen from 80.7 in 2009 to 78 in 2010, with a score of 80 being the cutoff between free and “mostly free.”

It’s not hard to get depressed about the prospects for economic freedom these days, given all of the government interventions of the past 18 months in response to the Great Recession. However, I think it’s important to remember that freedom encompasses much more than escaping government’s oppression and intrusion, and growth in government spending and taxation don’t automatically lead to totalitarianism.

I think many conservatives and libertarians look at government’s share of the gross domestic product as the central measure of freedom. Implicitly, they assume that if there were no government we would be 100% free. If government taxing and spending consume one-third of GDP, then we are only two-thirds free and so on.

Obviously, there is something to this. But because it’s so easy to measure government’s share of the economy, I think there is too much attention paid to it to the exclusion of other important factors. On the one hand, we underestimate the importance of government regulations because they are hard to quantify yet may affect our lives more significantly than taxation or other governmental actions. On the other, I think we tend to underappreciate the ways in which technology frees us. The blessings of things like cellphones, PDAs and the Internet compensate for an enormous amount of waste and inefficiency elsewhere in society and the economy. To the extent that technology boosts productivity, it makes the burden of government more bearable.

Another thing we tend to forget is the great benefit of the wealth that almost all Americans have today. Not that many years ago, people had to spend an enormous percentage of their waking hours simply acquiring and preparing food. Now, even among poor households, obtaining adequate food is a minor concern. Indeed, obesity is a far bigger problem among the poor than malnutrition. The freedom to do things other than grow crops, raise livestock and cook on a wood stove is not one to be underestimated.

Because of the declining cost of things essential to life, burdens that might have been unbearable in the past can be borne with relative ease today. Consider taxation. If much of society is barely able to produce enough to live on then even the smallest tax can be extremely burdensome. That’s the main reason why tax burdens before the 20th century were minuscule by today’s standards: There was simply nothing to tax. Wealth, incomes, output and productivity were too low for there to be much for government to take.

Now that the cost (both absolutely and relative to income) of basics–food, water, clothing–have fallen dramatically from just a few generations ago, people can afford to pay more taxes without suffering the deprivation that similar burdens would have imposed in the past. And we get more back for our tax dollars. In the past most government spending went for wars. Today, at the federal level, the vast majority of people will get back every dollar they pay in Social Security taxes plus a lot more, and Medicare provides a valuable service that will eventually benefit almost everyone. At the state and local level, spending mostly goes for things that people want, like police and fire protection, schools, parks and roads.

This brings me to an unappreciated point about how Social Security and Medicare add to freedom. Conservatives and libertarians tend to look at these programs solely in terms of the way they diminish it. But before these programs came along, care for the aged imposed an enormous burden on families that decreased their freedom.

Children were expected to take in their aged parents, care for them and provide them with food and medicine out of their own pockets. (That’s a key reason why people had more children in the past.) It’s a tremendous blessing for children to not have to worry so much about their parents–this has increased their freedom in ways that can only be appreciated by those who still have to care for a frail, ailing parent in old age.

At the same time, advanced health care and nutrition, not to mention Social Security and Medicare, have vastly increased freedom in old age. Not only do people live much longer today, but they are in far better physical condition and better able to enjoy life well past age 65. Those who would otherwise be crippled now have mobility, the formerly deaf can now hear and drugs now cure diseases that killed millions in the prime of life in the past. All of this adds immeasurably to freedom and tends to be overlooked by those who dwell exclusively on the relationship between people and government as its sole determinant.

I would just add that freedom is defined not only by the relationship between citizens and the state but also in private and business relationships as well. For example, not long ago it was extremely difficult to get a divorce; now it’s very easy. In the past many women were trapped in loveless marriages simply because they had no other option in a world in which job opportunities for them were extremely limited. There were also deep societal stigmas attached to things like having a child out of wedlock. Today, of course, women are thoroughly integrated in the labor force, and options for single women, whether divorced or never married, are as broad as they are for men, including those who choose to have children without the benefit of marriage.

Other groups in society have also seen a vast increase in their freedom over the past couple of generations. Blacks and other racial and ethnic minorities have improved their position in society astonishingly, just compared to that when I was a child. For the most part, homosexuals, atheists, Jews and other groups historically discriminated against are now free to live their lives without having to hide their nature or beliefs to avoid persecution. Of course, more needs to be done. But we shouldn’t dismiss the fact that enormous progress has been made to increase freedom for millions who had very little within recent memory.

My purpose is not to defend government or say that taxes and government spending don’t matter for freedom. My point simply is to suggest that there tends to be a myopia among conservatives and libertarians that is very quick to condemn governmental curtailments of individual liberty, while failing to appreciate or even acknowledge expansions of personal freedom that have enormously improved our lives over those of our parents and grandparents, not to mention those in the distant past.

There is also a tendency to exaggerate the importance of recent curtailments of freedom while failing to put them into proper historical context. Thus the small rise in the top income tax rate that Barack Obama supports is viewed as economically devastating by all conservatives, many of whom predicted a recession, which never happened, from the rise in the top rate in 1993. Yet the top rate he has proposed would still be well below what it was from 1936 until 1986.

According to Heritage, even with the huge expansion of government over the last two years we are still more free than we were in every year of the Clinton administration. It says that economic freedom during those years peaked at an index score of 76.7 in 1996, falling to a low of 75.4 in 1998. (In fact, the Clinton years were a lot better, economically, than today or any year of the George W. Bush administration, which suggests that economic freedom and economic prosperity don’t necessarily correlate.)

In an important essay for Reason magazine this week, David Boaz of the Cato Institute points out that libertarians and conservatives have an unfortunate affinity for idealizing 19th-century America as some sort of libertarian paradise, which tends to airbrush slavery out of the picture. Even among whites there was a lot of oppression from the nature of small-town life in those days, where everyone felt free to stick their noses into everyone else’s business and opportunities for travel, education and earning a living outside of farming (and other freedoms we take for granted today) were severely constrained.

Perhaps we are moving toward European levels of taxation and spending. While I would prefer not to live that way, I certainly don’t view those in Scandinavia, where the level of government is twice what it is here, as twice as close to slavery as we are. In other words, it’s not the end of the world even if the most pessimistic projections about rising taxation and spending are true. We can still live in a society that is only a little less free than the one we have today, even if freedom isn’t expanded in other ways, such as through technology.

According to Heritage, the people of Denmark, where government spends more than 50% of GDP, are only a tenth of a point less free than we are (at 77.9), and those in Canada, which has long had a government-controlled health system, are 2.4% more free (at 80.4). While Hong Kong ranks as the place with the most economic freedom (at 89.7), its people have very little political freedom, according to the latest report from Freedom House.

Finally, it’s important to remember that Americans do not live in isolation. Our freedom depends to some extent on freedom elsewhere. In the last 20 years there has been an enormous expansion of liberty because of the collapse of communism and increased freedom and prosperity in places like India, Iraq and Afghanistan.

It’s too easy to be pessimistic about the future of freedom by focusing only on the economic. Looking at freedom more broadly shows enormous and underappreciated progress that is likely to continue even if the tax/GDP ratio rises in the future.